British economy rebounds in third quarter

Britain's economy grew faster than expected in the third quarter, official data showed on Tuesday, but the outlook remains clouded by the eurozone debt crisis, government cutbacks and high inflation.

Gross domestic product - the combined value of all the goods and services produced in the economy - expanded 0.5 percent between July and September, the Office for National Statistics (ONS) said in a statement.

That beat market expectations for a 0.3-percent gain and marked a significant acceleration from 0.1-percent growth in the second quarter.

Finance minister George Osborne welcomed the news as a "positive step" for the economy, which has struggled to recover since clawing its way out of a vicious recession in 2009.

The ONS said GDP also grew by 0.5 percent compared with the third quarter of 2010.

The economy forged ahead despite major headwinds from the coalition government's deficit-slashing austerity drive and the burgeoning debt crisis in the eurozone, which is Britain's biggest export market.

"We have to take these figures one step at a time - it is a positive step and the economy is growing," Osborne told Sky News.

"Britain has a difficult journey to make from its debt-fuelled past, made more difficult by things like the problems you see in the eurozone.

"But we have taken a step down the road and it will lead to further prosperity. We are laying the foundations for the future success of the country," added Osborne, whose official title is Chancellor of the Exchequer.

The nation's recovery was aided in the third quarter by stronger output for the manufacturing and service industries, which helped to offset contraction in the construction sector.

Despite the better-than-expected headline GDP data, analysts said the outlook remained bleak.

The figures "do not alter our view that the economy is likely to fall back into recession over the coming quarters," said Capital Economics analyst Jonathan Loynes.

"There is a good chance that the economy will contract in the fourth quarter. And against a background of high inflation, the ongoing fiscal squeeze and the escalating eurozone crisis, we still see the economy stagnating in 2012 - or worse."

The economy slowed to a virtual halt in the second quarter as the country's output was dampened by a series of one-off events.

Most workers in Britain did not work on April 29, the day of Prince William's marriage to Catherine Middleton. British manufacturing also suffered from a shortage of parts from earthquake-hit Japan.

"Consequently, we should have seen a big rebound in any case. So, for the economy to have only grown 0.5 percent in the third quarter suggests the underlying picture remains weak," said ING Bank economist James Knightley.

Against this backdrop, the Bank of England last month decided to inject more new money into the economy, raising its Quantitative Easing scheme by 75 billion pounds (86 billion euros, $115 billion) over four months.

Under QE, the bank creates new cash which is used to purchase assets such as government and corporate bonds to encourage lending and boost growth. The BoE pumped 200 billion pounds into the economy between March 2009 and January 2010.